Ukraine Introduces State Financing for Political Parties

A Promising Reform or Cosmetic Change?

August 30, 2016

Since the victory of the so-called “Revolution of Dignity” in 2014, Ukraine has been going through an exceptionally complicated transition process. The post-Soviet country has been trying to execute parallel fundamental reforms in a variety of fields, under conditions of Russia’s simultaneous occupation of Crimea and hybrid though bloody war on Ukraine’s eastern border. More or less deep transformations have started to be implemented—with mixed success—in the armed forces, public administration, local self-government, economic relations, higher education, law enforcement, the health system, foreign trade, the banking system, the security services, and the constitutional order, as well as in other spheres. Yet perhaps none of these reforms is as important as the ongoing reset of the party system—a change meant to help depose Ukraine’s peculiar post-Soviet neo-patrimonial system of governance.

For observers of the post-Soviet “virtual politics,” described by Andrew Wilson in a seminal book of the same title, the creation or capture of political parties by the notorious “oligarchs” is at the root of many other problems in Ukraine’s public life. Organizations that mainly function as lobbying arms of various financial-industrial groups participate as “parties,” “unions,” or “blocs” using this or that political buzzword (from “liberalism” and “socialism” to “patriotism” and “conservatism”) in elections. When they enter national, regional, and local assemblies, scores of Ukrainian “people’s deputies” aggressively advance the narrow interests of “oligarchs” within parliament. The hired MPs also actively promote covert representatives of their wealthy sponsors for key positions in the various branches of power and in state companies.

As a result, many laws are adopted not to serve the public good, but to benefit Ukraine’s magnates. Appointments to government ministries and the civil service are made less on the basis of professionalism or political persuasion, but more according to personal allegiance or plain nepotism. Ukraine’s national government and regional administrations are not shaped as coalitions of parties with different ideologies, but as temporary arrangements between various financial-oligarchic groups. All over the country, thousands of party functionaries, shady politicians, corrupt bureaucrats, pseudo-journalists, “political technologists,” fake activists, and bogus experts are paid, by the oligarchs, to keep this system going and to reproduce it under changing domestic and international conditions.

The bizarre effect of this problematic state of affairs on Ukraine’s political system is a constant rise and fall of parties that, often, would become popular and influential for one, two, or three electoral periods, yet would completely disappear in the following one (with the communists having been the only exception to this rule, during the first two decades of post-Soviet Ukrainian history). This pathology was once more illustrated during Ukraine’s last, October 2014 national parliamentary elections. In their result, only one more or less established party with some regional structure—Yulia Tymoshenko’s Batkivshchyna (Fatherland) Union—made it into the Verkhovna Rada (Supreme Council). All other “parties” and “blocs” that passed the five-percent threshold were entirely or relatively new political projects. They had been founded or reset only recently, and had never before been represented with factions in parliament. Some—including the election’s two winners, the Poroshenko Bloc and People’s Front—did not even exist until one year before the elections. The ad hoc creation or revival of these—until shortly before the election, largely unknown—entities involved significant, if largely non-transparent financial transfers from well-known oligarchs and unknown other sponsors. In spite of Ukraine’s glorious emancipatory insurrection only a few months before, central features of Ukraine’s first post-revolutionary parliamentary elections in 2014 and its seemingly new party system eerily resembled those of the pre-Maidan period.

Against this sobering background, the introduction of state financing for political parties is now in process—a transition that had been discussed for many years, yet started in earnest only after the “Revolution of Dignity.” It is hoped that this reform will create a more transparent, equal, and democratic playing field for Ukrainian politicians and their organizations, and will reduce the party system’s infiltration by private interests. To be sure, society and elites are divided on the issue of state financing of parties. Not only do those political activists working for secretively sponsored political projects have little interest in an openly regulated financing of parties. Many within Ukraine’s paternalistic layers of society think that there is already too much money in Ukrainian politics. They find the idea of the state putting—as they see it—even more funds into financing political competition absurd.

In a November 2015 all-Ukrainian poll, respondents were asked who they think should finance political parties. Only 13 percent supported state funding for parties while most preferred parties to be financed by their leaders (39.9 percent), members (39.5 percent), and “supporters” (31.1 percent). No less than 14.1 percent agreed that “businesspeople” should sponsor political parties. When asked whether they would support state funding of parties, 76.2 percent answered “No” while a mere 14.9 percent marked “Yes.” As in other post-Soviet societies, there is a lack of understanding in Ukraine that financial independence of parliamentary parties is necessary to eliminate the business, administrative, and political elites’ practice of looting the state. Only when parties become—at least partially—financially independent, political forces will emerge that aggregate social rather than private interests.

In October 2015, the Ukrainian national parliament, the Verkhovna Rada, adopted Law No. 731-19 “On Introducing Certain Changes to Legislative Acts of Ukraine in Connection with the Prevention of and Counter-Action Against Political Corruption.” It was noteworthy that, in its initial version, this draft law introduced state financing for political parties that received more than 3 percent in the last (in other words, in the 2014) parliamentary elections. This particular threshold would have been to the advantage of certain smaller but still established parties which did not make it into parliament in October 2014, yet received between 3 and 5 percent of votes. They include radical organizations like the Communist Party of Ukraine and the ultra-nationalist union “Freedom,” but also Anatoliy Hrytsenko’s pro-democratic “Civic Position” allied to the post-Maidan Democratic Alliance—two organizations built without or with little oligarchic financing.

However, this draft was amended either as a result of pressure from the government, or due to intra-parliamentary reconsideration or manipulation. Thus, the final adopted law had a conspicuous transition rule for the next three years, until the next regular parliamentary elections. The now valid law provides that only parties that made it into the Verkhovna Rada in the October 2014 national election—those that passed the 5 percent threshold in the proportional part of the voting—will benefit from state financing starting in July 2016. Only these parliamentary parties will now receive financing from Ukraine’s national budget in accordance with the formula of Ukraine’s current minimum wage times 2 percent of the total number of votes cast for the party.

As a result of this new law, for instance, former Prime Minister Arseniy Yatseniuk’s People’s Front, which got over 20 percent of the votes in 2014, will now receive 84,970,457 Ukrainian hryvnia (roughly 3 million euros) in statutory financing. That is in spite of the fact that the People’s Front is today in disarray and hovers around 1-2 percent in opinion polls, and that Yatseniuk had been forced out of the government last spring. The presidential parliamentary party under the name of the Petro Poroshenko Bloc is also down to single-digit numbers in some opinion polls. Yet it will also get considerable statutory financing of around 83,738,022 hryvnia. Another relative newcomer party in 2014 was “Self-Reliance,” a political player that grew out of a Galician NGO as well as the Euromaidan movement and is less leader-centered than the Poroshenko Bloc or Yatseniuk’s People’s Front. “Self-Reliance” got 11 percent in the proportional voting, and is thus entitled to 42,125,0141 hryvnia.

The “Civic Position” of Anatoliy Hrytsenko got 3.1 percent and did not make the five percent threshold. It thus ends up—after the draft law’s amendment—without any state funding for the coming years. That is in spite of the fact that the favorability rating of Hrytsenko (25 percent) was, in a June 2016 IRI poll, higher than that of both Poroshenko (19 percent) and Yatseniuk (6 percent). In that poll, Hrytsenko’s “Civic Position” was supported by about 2 percent all respondents and by 3 percent among likely voters; Poroshenko’s Bloc by about 7 percent of all and 11 percent of likely voters; and Yatseniuk’s People’s Front—the recipient of the largest amount of state funding according to the transition rules of the new law—by about 1 percent of both all and likely voters. The transition rules of the new law thus have an ambivalent effect. They serve the currently dominating forces in parliament rather than taking into account the recent change of preferences in the electorate.

The new permanent regulations of the law indicate that parties which get more than 2 percent in the next national elections, currently scheduled for 2019, will be eligible for statutory financing for the coming parliamentary term. In addition, a partial compensation for election campaign spending in 2019 is also made conditional upon a result of at least 2 percent received in the proportional part of the voting. Only parties which win more than 2 percent of votes in the next parliamentary elections will be eligible for both forms of state support in 2019—for both statutory funding and campaign expenditures compensation.

Most of the state funding for parties will, until the next elections, go to the leader-centric and ad hoc-created political projects of Poroshenko and Yatseniuk. These are, however, unsustainable organizations that are not proper parties and have lost most of their popular support over the past two years. The new law thus has, in part, effects contrary to its anticipated aim of supporting democratic political competition without oligarchic backing. Instead, feeble electoral organizations that made it into the current parliament thanks to the temporary popularity of their leaders and to large inflows of money from private sponsors are being awarded taxpayer money.

This is in stark contrast to the situation of such less or non-oligarchic organizations as the “Civic Position” and Democratic Alliance, or another similar organization called “Force of the People.” These more clearly reform-oriented parties have the potential to become serious contenders against the old political elite, yet will, for the near future, not get any statutory financing. Instead, state donations are now being paid to leader-centric political projects like the Poroshenko Bloc or People’s Front, as well as to the Opposition Bloc, the revamped Party of Regions once led by Viktor Yanukovych. These latter groups currently dominate the parliament and represent the old pseudo-party system that the law aims to overcome. Oddly, lack of money has actually not been and will not be that much of a problem for these old-style political projects, as they remain supported by oligarchs.

In the next round of parliamentary elections scheduled for 2019, or in a possible nation-wide snap poll before then, prospective newcomers to the state financing system will need to get over 2 percent support in order to be entitled to a compensation for their election spending. The maximum amount a party can get for such expenses is the equivalent of 100,000 times the officially determined minimum salary during the election year, which would at present mean 145,000,000 hryvnia or approximately 5.3 million euros. If a party receives more than 2 percent in the next parliamentary elections, it will also get access to statutory party financing. Yet, in the first place, parties need to get the necessary minimum support without any state financial support, while competing with the current parliamentary parties that are already receiving statutory state funding. Only if they manage to overcome this hurdle in 2019 will they have a realistic chance to build up, with the state’s support, a real party, and to get prepared for the following regular parliamentary elections now scheduled for 2024.

Another critique concerns the fact that the new law, while being an important step ahead, only regulates which state funding resources parties are entitled to at what maximal amount. It does not prescribe, for instance, any penalties for hiding additional funding sources of parties or for not fully disclosing the parties’ spending. It also does not address the issue of transparency in the sources and amounts of electoral campaign funding—a crucial matter in post-Soviet politics. Ukrainian national electoral campaigns are—in spite of their taking place in a relatively poor country—among the most expensive in world. Much of their funding seems to come from the shadow economy.

To be sure, the issue of donations to electoral organizations is already addressed within an older law, “On Political Parties in Ukraine,” adopted in 2001. Yet, it has never been taken up in Ukrainian political and legal practice. As in many other areas of public life across the post-Soviet area, there is a large gap between the official text and the actual implementation of laws—including those on political affairs—in Ukraine. So far, there has never been a significant case of a law-enforcement body detecting and prosecuting dubious campaign funding. The problem is exacerbated by the fact that expensive TV advertisements traditionally influence Ukrainian election outcomes significantly. Therefore, it would be beneficial to complement the new law on party financing with a law restricting TV ads during election periods, as is currently being discussed in the Rada.

Finally, an election law introducing an open-list proportional representation voting system has been continually promised by President Petro Poroshenko and other politicians since 2014, but never initiated. Such an electoral reform abolishing single-member districts and introducing open party lists would, in the specific situation of post-Soviet politics, be crucial to provide for more sustainable connections between voters and parties. The election campaigns in the single-member districts are notorious for their proneness to the manipulation of voters’ decisions via biased local media reporting, pressure on the employees of companies close to the candidates, bribing of voters with personal “gifts,” and other means.

The reset of Ukraine’s flawed party system is, moreover, determined not only by new laws related to financing issues. The success or failure of the creation of a proper party system will also depend on the broader outlook of a transformation of the Ukrainian system of rule of law in the coming years. If ongoing judicial reforms are unsuccessful, there will be no proper oversight of Ukraine’s party system by law enforcement agencies any time soon. More specifically, a lot will depend on what the bodies assigned to execute the new anti-corruption law—the Court of Auditors and the National Agency for the Prevention of Corruption—will make of their functions.

In spite of this ambivalent outlook, one should not forget that Ukraine is still one of the two most developed democracies among the founding republics of the former USSR (Georgia being the other). While political competition and elections in many other post-Soviet states are a mere sham, Ukraine’s major political parties are complicated projects compounding political ideologies and private interests. They are not simply fake entities, but partially fulfill their social functions. They compete relatively freely and are engaged in a real political struggle. Ukrainian elections are, because of the deep financial subversion of electoral parties by oligarchs, flawed political processes. Yet, Ukrainian elections still represent partly meaningful expressions of the voters’ will, even though this will is being misinformed and manipulated through oligarchic corruption of political parties and mass media. The results of Ukrainian parliamentary elections are, unlike in many other post-Soviet states, not fully predictable. Unlike, for instance, State Duma elections in Russia, they actually do determine the course of legislation as well as the practice of executive governance.

All this means that Ukraine’s civil society and foreign friends will, during the next few years, have to try as hard as possible to compensate for the continuing flaws in the legal regulation and political set-up of the Ukrainian party system, until things should become markedly better after 2019 (or before then, in the case of snap elections). As most of the current political elite are opposed to the attempted reset of the party system, patriotically minded activists, investigative journalists, pro-democratic foundations, and Western international organizations will have to coordinate their actions closely. They need to jointly investigate, uncover, and resist the subversion of Ukrainian parties and elections by private interests. If they manage to scandalize, prevent, or deter the most egregious machinations, they may be able to limit the electoral effects of the ongoing manipulation of Ukraine’s political process by rapacious oligarchs, corrupt bureaucrats, pseudo-journalists, and shady politicians. If they do so, in about ten years, Ukraine may have obtained a more or less properly functioning party system with transparent national elections.

The authors acknowledge the expert advice generously provided by Viktor Taran, Chairman of the Eidos Center, a Kyiv NGO which is a coordinator of Ukraine‘s joint civil society coalition "Party Finances under Control!"